News

The Carbon Washington team was excited to see Governor Inslee kick off the legislative session this week by introducing a carbon pricing plan. The Governor has gone “all-in” on this proposal, using the bulk of his State of the State address on Tuesday, January 9, to speak to it and issue a passionate challenge to legislators to take serious action on climate this session:

“...we must recognize an existential threat to the health of our state, a threat to the health of our children, and a threat to the health of our businesses that demands action. That threat is climate change.”

Overview

On balance, we find that Governor Inslee’s proposed bill gets many of the big pieces right. We are still reviewing the details but we hope and expect to see it gain momentum this session. The policy has four major components:

Charges a $20 per/ton carbon tax, +3.5% per year.

Allocates 50% of the revenue to carbon reduction and clean energy.

Allocates 35% of the revenue to natural resources.

Allocates 15% of the revenue to workers and low-income people.

The Governor’s proposal would tax carbon pollution from from all coal, oil, and gas sources in the state, as well as electricity from those sources including imported electricity. (Montana’s coal plants that power Puget Sound Energy would be taxed, for example.)Public transit and marine fuels are covered by the carbon tax, with agricultural diesel exempt. The price would start at $20 per ton beginning in June of 2019. Starting in 2020, it would increase by 3.5% plus inflation each year, without a price cap. The tax has broad coverage and is imposed upstream. That may sound familiar, as it closely replicates Initiative 732.

The tax is estimated to generate “$1.5 billion in new revenue over the first two years and an estimated $3.3 billion over the next four years,” which will be allocated into three main areas — clean energy investments, water and natural resources resilience, and transition assistance. Of the revenue, 50% would go to investments in clean energy transition — a priority would be given to projects that benefit low-income communities, communities of color and indigenous communities — but there is not a specific overlay or percentage that is required to be spent on low-income communities. An additional 35% of the revenue is designated for water and natural resource resilience,including projects to reduce stormwater pollution, build fish culverts, improve forest health and fire management, and prevent flooding. The final 15% of the revenue would go to worker transition and low-income support through existing programs, including income assistance, affordable housing and transportation development, rural economic development, and training and education subsidies. The plan also features strong accountability measures in the form of clear agency authority, metrics and cost abatement data around the spending programs, and citizen oversight. The table below breaks it down:

Revenue distribution

Amounts

Program Type

Goals

50%

Clean Energy Transformation

Funds investments in clean energy, particularly in low-income communities, indigenous communities, and communities of color. Nonprofits, businesses, and local governments will be eligible to apply for funding for verified carbon-reduction projects.

35%

Water and Resource Resilience

Funds for stormwater and flood risk management, fish culverts, forest fire prevention and management. Also a focus on water resource reliability and conservation.

The Governor’s carbon tax would exempt exported fuels and electricity, as well as Washington’s only coal plant, TransAlta, which is due to shut down completely by 2025. The bill also exempts Emission Intensive Trade Exposed (EITE) industries such as aluminum production and pulp-and-paper mills, but uses a particularly narrow definition of an EITE, compared to some past carbon tax bills that granted broader exemptions. Industries would have to provide proof of harm to be exempt from the carbon price — for example, facing something like a significant competitive disadvantage. Any exemptions granted would have to be re-evaluated every three years by the Department of Commerce.

This bill seeks to find a reasonable middle ground that protects manufacturers without exempting businesses that don’t meet the definition of Emission Intensive and Trade Exposed. The EITEs are also eligible to receive funds from the clean-energy programs (both the state-run program and the utility retained revenue program) to reduce their carbon emissions.

The proposal also has some special rules for utilities called Utility Retained Revenue. This is a top priority for utilities who lobbied for this concept last year. Under this program all utilities (including public utility districts) can retain the carbon tax they owe in a seperate account for clean energy and energy efficiency programs. For example, Avista could use up to 100% of the taxed amount by designing a plan to use that money for clean energy, weatherization, and low-income programs. Each utility would have to design, and get UTC or Department of Commerce approval of, a Clean Energy Investment Plan that would reduce greenhouse gas emissions in a manner beyond existing legal obligations (each additional dollar would have to yield an additional carbon reduction).

Furthermore, 20% of the Clean Energy Investment Plan money would have to be dedicated to low-income energy assistance such as discounted rates and weatherization, EV charger distribution, rebates, and other support. Each utility’s plan would not be allowed to earn a rate of return and would have to be updated every three years. This area in particular is one part of the bill we want to examine more closely to ensure that funds are used in a responsible way.

Finally the Governor’s bill also requires the Department of Commerce to develop a “Deep Decarbonization” plan within the first two years. This section would require establishing an advisory committee that would come up with a statewide plan to reduce our emissions by 80% (or more) of 1990 levels by the year 2050. The Office of Financial Management, Department of Ecology, UTC, and WSU extension program would assist an advisory committee made up of “local and state governments, businesses, public interest organizations, energy industry, and citizens” in developing this plan.

Additional thoughts

The bill would prohibit any other localities in Washington State — like cities or counties — from passing their own carbon tax (for more on that approach, check out our analysis here).

Electricity bought by utilities for which the source cannot be sufficiently determined would be taxed at a rate of one metric ton of CO2 for every megawatt-hour.

Many biofuels are exempt, including biogas, biodiesel, and renewable diesel.

The State Board for Technical and Community Colleges would be granted some of the transition funds in order to promote clean energy jobs by establishing three new “Centers of Excellence” devoted to renewable energy development and integration; development of smart-grid power and next-generation hydropower; and sustainable forestry, including sustainable products, forest health and forest fire management.

This policy is missing an explicit low-income rebate, although it permits spending to assist low-income people through “existing cash rebate programs.”